Carbon Border Adjustment Mechanism and Asian Manufacturing Exporters: Trade Costs, Mitigation, and Supply-Chain Spillovers in India, China, and Japan

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🔬研究者:Provides a comprehensive framework for quantifying CBAM impacts using multiple methodologies, useful for further trade and climate policy research.

🏢実務担当者:Highlights the need for supply-chain emissions management and domestic carbon pricing strategies to mitigate CBAM exposure.

🏛政策担当者:Informs design of domestic carbon pricing and trade policies, emphasizing the importance of emissions intensity reduction and international cooperation.

This paper quantifies the trade and production-network implications of the European Union's Carbon Border Adjustment Mechanism (CBAM) for three major Asian manufacturing economies-India, China, and Japan-across the carbon-intensive sectors most directly affected by the regulation: steel, aluminium, and cement. The analysis proceeds in four linked stages. A carbon cost accounting framework first translates sector-level embedded emissions into ad valorem trade cost equivalents at prevailing EU Emissions Trading System (ETS) prices. A structural gravity specification then maps these cost shocks into bilateral export-volume responses, using a calibrated trade-cost semi-elasticity drawn from the empirical trade literature. A scenario analysis evaluates the extent to which domestic carbon pricing aligned with EU ETS levels can mitigate exposure under the CBAM equivalency principle. An input-output extension based on OECD Inter-Country Input-Output (ICIO) tables traces direct and indirect supply-chain spillovers, with particular focus on India. Three findings emerge. First, ad valorem CBAM cost exposure varies widely across countries and sectors, ranging from 6 percent for Japanese steel to 72 percent for Indian cement, with crosscountry differences driven primarily by emissions intensity. Aluminium emerges as the most exposed sector across all three economies. Second, gravity-based simulations indicate that CBAM-induced export contractions to the EU are substantial for emissions-intensive sectors and only partially offset by reallocation to non-EU destinations, leaving meaningful net export losses. Third, full domestic carbon pricing alignment with the EU ETS reduces exposure by 59 to 94 percent across countries and sectors, but the residual gap is largest where emissions intensity is highest, indicating that pricing alignment is necessary but not sufficient. Inputoutput analysis for India further shows that 38 percent of the steel sector's exposure propagates through indirect supply-chain linkages, with non-CBAM sectors such as machinery, equipment, and construction absorbing material spillovers. The findings carry implications for the design of domestic carbon pricing instruments, industrial decarbonisation strategies, and trade policy adjustment in increasingly carbonconstrained global markets.

• openaire https://doi.org/10.2139/ssrn.6702561first seen 2026-07-09 04:31:48 · last seen 2026-08-02 04:45:04